We talked about the latter with the ancient miner and, until recently, the
main players in base metals were producers, users, and some speculative funds.

The latter were usually scorned by those in the real trade. That pension
funds are now positioning metals is extraordinary.

Overview: Our historical work on silver and gold peaks has been timely.

Once the gold/silver ratio changed to rising on April 19, an important high
would be expected some 3 weeks later. This works out to this week and the pattern
is worth reviewing.

First, the action in gold and silver is within the pattern that concluded
irresistible important highs - including those in 1980 and 1974.

During any boom, the gold/silver ratio declines as silver outperforms gold
and this has been celebrated. However, the key to the ending action is when
the ratio reverses as, in the final weeks of the play, gold outperforms silver.

The ratio reversed on April 19 at 43.6 (82 in 2003) and tested the low at
47 on May 2. While brief, we take this as a trend reversal.

This is typical of the pattern, which has been suggesting that the play would
max out this week. Usually this has highs for both gold and silver, but the
latter's attempt seems impaired by the excesses going into the launch of the
ETF.

The important thing is that gold should be enjoying a powerful move going
into this week (√).

Perfection in pattern would include a new high for silver (14.74 on April
19; 15.21 this morning).

Not all of our readers are trading gold and silver, but it is possible that
this change will influence most market sectors.

For centuries, a declining gold/silver ratio has anticipated or confirmed
a boom. For example, with the post-oil bubble contraction of the 1980s, the
ratio rose to above 100 in late 1990 when Greenspan bailed out Citigroup and
Chase Manhattan.

Their problem? Overlending on the 1980s manias in tangible assets.

The ratio, in declining to 43.6 in April, is a huge move and accompanied
by an infatuation with both tangible and financial assets.

It is a caution.

Stock Market: The Dow and S&P are scoring new highs against the
continuing negative divergence of the underperforming Nasdaq and technical
deterioration.

This has been the case for a while and it's worth noting that a top is a
financial process that is only seen to be an event in retrospect.

Obviously, this is a grinding phase whereby bullish sentiment is gradually
denied by deteriorating momentum. This makes the stock market vulnerable to
changes in credit availability as well as external influences.

On the latter, we have been watching the crash in the Dubai stock index.
This is a proxy for the action in lesser exchanges and often at great speculative
peaks the party fails in the lesser bourses first.

It's not just the bourse that is attracting attention. Indoor skiing is now
open (check out www.skidubai.com) and
the slope is not as steep as the Dubai chart. Oh, we do like gravity sports
and, of course, for the open mind this would include bear markets.

To be serious, leadership in the stock market is diminishing and vulnerable
to the fallout from the loss of liquidity in lesser exchanges. In a domestic
sense, it is vulnerable to the signal from the yield curve whereby the reversal
to steepening is anticipating the next contraction.

This will become more significant when short rates begin to decline. In the
meantime, and discussed above, the gold/silver ratio has reversed in a manner
that typically anticipates a credit contraction.

Expectations are high at the most important seasonal high in the year.

Continue to lighten up.

Sector Comment: The gold sector is overdone on the upside and could
correct into June. Investors can defer buying and the advice to traders has
been to sell senior golds in order to buy the exploration sector on weakness.

Bank stocks have finally caught up to the fast rally in our Bank Trading
Guide. This reached 229 in the latter part of April, from which it corrected
to 196. Now at 203, taking out 196 would provide the "sell" signal.

Considering the volatility on the developing trend change, this will be the
biggest such signal since 1998.

Continue to lighten up on the banks and financials and get more aggressive
when the "sell" is registered.

INTEREST RATES

The Long Bond is attempting to base and yesterday's Fed announcement
on administered rates dropped it down to the 106 level.

This is within the seasonal weakness likely to run until this week.

Traders could buy for a brief rally.

The Dollar Index remains oversold and doggy. What is now needed for
the "buy" is the first week with an uptick in the chart.

Long treasuries have been declining with the party in metals. However, gold
and silver are very close to correcting, which would steady the dollar.

Credit Spreads continue their trip through complacency land.

The high-yield, which had widened out to 455 bps, over treasuries, in late
March has partied in to 285 bps yesterday.

Even the medium-grade, which doesn't act like a stock, has narrowed from
149 bps to 136 bps.

The Canadian Dollar continues to enjoy the good vibes from base metals and
U.S. corporate bond spreads as well as a political renaissance in federal government.

However, the best is likely in on metals and spreads so the C$ could consolidate
the gains.

COMMENTS FOR METAL AND ENERGY PRODUCERS

Energy Prices: Crude oil has become choppy after setting what could
be a seasonal high. The high was 75.79 on April 21, from which the initial
low was 69 on Monday.

This leg up is participating with the mania in metals, but technically the
action is likely a test of the high.

Oil patch stocks have been in the same pattern and are attempting to test
the highs.

However, a tradable decline for both is likely down to a seasonal low in
late June - early July.

At that point, we will be looking for a choppy rally up until early October.

Base Metal Prices continue to ramp up in a truly spectacular fashion.

As we have been saying, this is on a steep spike and, as the saying goes, "The
sumo match isn't over until the fat guy flings."

In November, legendary copper trader, Herb Black, stated that the metal could
run to $5,000/ton. It was then at $4,300 and it rose through the number in
late March and hasn't looked any other way but up.

The progress of hitting round numbers has been interesting. Starting at 4000
on November 1, it took 16 weeks to take out 5000 (on March 3). Reaching 6000
on April 12 took 6 weeks; to 7000 on April 25 was 7 trading days. A jump to
8000 yesterday took a leisurely 9 days. Today it's up 5.8% at 8619.

We have not been attempting price targets but looking for signs of dynamic
exhaustion.

Copper's price advance became exponential and with zinc making even more
impetuous gains the action is replicating the Dot Com mania, in which case
Dot Copper comes to mind as well as Dot Silver and (shudder) Dot Zinc.

Quite likely, the key to the end will be the trend reversal in the gold/silver
ratio. Once past this test, the trend will have reversed and the end of the
mania in base metal prices should soon follow.

Continue to lighten up in the base metal mining stocks.

Golds: Once again we are facing the question - Are we
there yet?

In April, the ChartWorks had a target of 172 on the XAU (which is used because
of its longer history). Today's high has been 171.71 - close enough.

On timing, once the gold/silver ratio reversed to rising, the high for both
became probable some 3 weeks later - or this week.

Admittedly, it is ominous because both price and time targets are accompanied
by a raging mania - which is essential for a top.

Traders can become more aggressive in selling senior golds in order to accumulate
smaller-cap exploration stocks on weakness.

Gold/Silver Ratio: Since March, we have emphasized that the action
in silver could become sensational and used the highs of 1980 and 1974 as the
key examples.

In both cases, silver outperformed gold until 3 weeks before the play climaxed.

This is being accomplished now, in which case our emphasis shifts to the
likelihood that silver could underperform gold for some years.

For this, the ratio has recorded a cyclical decline from 82 in June, 2003
to 43.8 in April. This has been associated with the boom.

This is typical of boom times and the reversal in the ratio will be accomplished
as it goes through 51, which will do two things.

One - that there will be a business and credit contraction. Two - that
silver will underperform gold for a few years. It's a cyclical thing.

FRI

MON

TUES

WED

THURS
NOON

May

5

8

9

10

11

High-Yield Spread

289

289

286

285

-

Treasury Curve

17

16

17

13

17

Base Metal Prices

697

680

701

730

779

Dollar Index

85.1

85.4

84.8

84.5

84.3

Gold

682.2

677.8

694.4

703.7

722

Gold/Commodities

237

241

241

237

-

"Stronger than thunder's winged force
All-powerful gold can speed its course;
Through watchful guards its passage make,
And loves through solid walls to break."
Horace

The opinions in this report are solely those of the author.
The information herein was obtained from various sources; however we do not
guarantee its accuracy or completeness. This research report is prepared for
general circulation and is circulated for general information only. It does
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and the particular needs of any specific person who may receive this report.
Investors should seek financial advice regarding the appropriateness of investing
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